Understanding Mortgage Basics
Whether you are searching for your first home or moving up to a bigger home,
it is important to have a good understanding of what mortgages are and how
they work. Mortgages are typically referred to as home loans, but mortgages
are not actually loans in the traditional sense. A mortgage loan is actually more
of a security instrument than a traditional loan. The money provided by the
lender is secured by the property on which the mortgage is written.
The introduction of a mortgage loan actually creates a lien against the property
on which it is written. The home itself serves as the collateral for the loan.
If the home buyer defaults on the mortgage payments, the bank, credit union,
savings and loan or mortgage broker has the right to repossess the home in an
attempt to recover the money they are owed. The lien created by the mortgage
also means that the home cannot be transferred to another party until the lien
is satisfied.
There are several types of mortgages available for home buyers today. The first
thing many people think of when they hear the term mortgage is the traditional
30-year fixed rate mortgage. This mortgage provides for a set monthly payment
every month for the entire 30-year life of the loan. The monthly payment is
determined at the outset of the loan, and the homeowner continues to make payments
until the loan is paid off and the lien is satisfied.
These fixed rate mortgages also come in 15-year terms. Even though the loan term
is only half of the 30-year mortgage loan, the payments are not double as you
might expect. This is due to the way interest is calculated. The monthly mortgage
payments on a 15-year loan are higher than those on the same amount mortgaged
over 30 years, but you may be surprised at how little that difference really is.
If you are considering a 15-year mortgage, you may want to run the numbers on a
mortgage payment calculator to determine if you can afford the payments on a 15-year
mortgage.
In addition to the traditional fixed rate mortgage, there are variable rate
mortgages on the market as well. As opposed to fixed rate mortgages, these
adjustable rate mortgages will see their monthly payments fluctuate as interest
rates rise and fall. There will be a cap above which the interest rate cannot rise,
as well as a rate and a time at which the adjustable rate mortgage can be converted
to a fixed rate mortgage.
As you can imagine, a variable rate mortgage is great when interest rates are
steady or falling and not so great when interest rates are on their way up. A rise
in interest rates means a rise in your monthly mortgage payment, so it is important
to make sure that you can afford the monthly payments even if the interest rate rises
to its highest possible level.
No matter what type of mortgage you decide on, the decision to purchase a home is
a significant financial decision. It is important that the buyer understand all
the costs associated with home ownership - things like insurance, taxes and utilities
can really add up. Once the buyer is ready to make the plunge, however, they may find
that a home is their best investment in addition to a great place to live.
|
|
LendingTree
LendingTree is the leading online lending and realty services exchange that empowers consumers. Whether you're
looking for a purchase loan, a refinance loan, or a home equity loan, LendingTree can help.
You can choose from up to four competitive loan offers from major, national, regional, and local Lenders across the U.S. When Banks Compete, You Win.®
|
|
